Kudlow’s Money Politics

If Things Are So Bad . . .

If the economy is in recession, why are business durable-goods orders and shipments booming? Non-defense capital goods (capex) excluding aircraft rose 1.4 percent in June, or 19 percent at an annual rate over the last three months. Capex shipments rose 0.7 percent in June, or 8 percent annualized over the last three months. Business looks pretty healthy to me. And non-financial profits in the second quarter are rising 12 percent. Even including depressed bank earnings, positive surprises for profits are well outstripping negative surprises.

And if we are in a housing depression, why have existing home sales in the hard-hit West (think California, Arizona, and Nevada) increased four straight months (plus 12 percent)?  And why are they up 17 percent from the low in October? More important, nationwide median existing home prices have increased four straight months, from $196,000 to $215,000. That’s a 10 percent gain.

And if the humongous Freddie, Fannie, and FHA ($300 billion) housing-bailout bills are so important, why did bank, thrift, and other financial stocks register their worst losses in eight years yesterday?

Maybe the answers to these questions are a bit different from what the mainstream media are telling us. To wit, Phil Gramm was right: We are in a mental recession, not an actual recession. And the low-tax, free-trade, free-market, capitalist economy is a whole lot more resilient and durable than the pessimistas and declinists would have us believe.

Big-government bailouts — the likes of which we haven’t seen since the 1930s — might just make matters worse, rather than better, since they interfere with the workings of free markets. In relation to the bailouts of Fannie and Freddie, we are talking about privatizing gains while socializing losses. Or as Paul Gigot of the Wall Street Journal put it, we’re using government power to generate private profits. This is always a bad idea.

Larry Kudlow — Larry Kudlow is CNBC’s senior contributor. His new book is JFK and the Reagan Revolution: A Secret History of American Prosperity, written with Brian Domitrovic.

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